The myelin-associated glycoprotein (MAG) is selectively localized in the periaxonal part of CNS and PNS myelin sheaths where it is likely to be involved in glia-axon interactions. In the PNS, it is also present in the outer mesaxon, Schmidt-Lanterman incisures, and the lateral loops. It is hypothesized that the bulky MAG molecule is responsible for the greater separation of the Schwann cell membranes in these locations than in the compact myelin. During peripheral nerve myelination, MAG increases slightly before the major PO glycoprotein increase. MAG has been identified as the myelin antigen that reacts with monoclonal IgM in a number of patients with peripheral neuropathy associated with paraproteinemia. Metabolic studies in developing rat brain have demonstrated membrane fractions that contain MAG of very high specific radioactivity and which may be precursors of compact myelin. There is a neutral protease in myelin purified from human brain which rapidly converts MAG to a slightly smaller derivative (dMAG). This proteolytic activity is significantly greater in myelin isolated from multiple sclerosis brain than in myelin from control brain.